The investment management industry is data-driven and the amount of data managed by the industry has increased exponentially in recent decades, in particularly over the last 10 years. Many publications have already discussed this evolution and its impact on the industry. For instance, in its article “Advanced analytics in asset management: Beyond the buzz”, McKinsey & Company illustrated the evolution brought about by the use of advanced analytics across the full asset management value chain, and explained how applying leading analytics technology to the different components of the value chain has helped to increase the effectiveness of decisions and the efficiency of the business. From data-driven client prospection to unbiased investment decisions; administrative and reporting process automation to automated controls, the digital revolution has made a significant mark on the industry.

In addition, data management and analytics evolutions are also transforming another segment of the value chain: the external audit. The external auditor has a critical role to play in the value chain as the fourth line of defense not only in providing assurance on the published annual accounts, but also bringing fresh and valuable perspectives and insight to asset managers reinforcing the trust of any stakeholders. This article analyzes how technology and data management have already transformed the external audit service, and highlight the positive impacts of this transformation on audit efficiency and quality and how it continuously strives to meet investor’s increasing expectations.

Exchange, transform and load: The ETL solution

Every audit starts with a strong data collection process which must be efficient and ensure reliable information ready for audit processes. Ten years ago, this collection process was based on e-mail exchange of Excel files and implied numerous manual interventions from all stakeholders involved in funds audits: the service providers, the management companies, the directors, and the auditors. On top of this, there was a lack of standardization of the accounting data format that led to manual and time-consuming retreatments. Every counterparty was spending a significant amount of time extracting data from their systems, only to, in many circumstances, manually amend and re-format before finally sharing it with auditors. These auditors then often had to manually retreat the data again before feeding it into their audit software. All of this only added to an increasing risk of errors, mistakes, and un-due amendments.

Reducing such risks, together with the aim of improving efficiency, has been one of the main objectives behind the automation of the data gathering and audit transformation process.

One of the first steps in this automation journey was the set-up of secure exchange platforms and FTP channels between auditors and service providers. The creation of such a secured data exchange platform replaced the use of e-mails, USB sticks, mail etc. in the data collection process. The uploads/downloads were still manual, but the flow was automated.

A few years ago, robotics (RPAs), APIs, and other automated solutions adopted by central administrators’ platforms and/or by auditors themselves, represented another important milestone in the automation journey. It made possible the automated transfer of information on a more regular basis and with limited human inputs at the entry and exit of the data flow. This positively affected risk management and the efficiency of the process.

Figure 1: Workflow DNAV

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In recent years, the emergence of ETL solutions developed by audit firms has been a final significant improvement in not only gathering the data, but also transforming it to create data lakes and analytic solutions. As an example, one of the current ETL solutions used by Deloitte Audit offers the possibility to:

• Directly pull, on a daily basis, all static and accounting data needed for the audit procedures from administrators’ systems without any manual intervention with a clear benefit in terms of security and efficiency;
• Automate the transformation of data in an auditable format which remains consistent whatever the source is;
• Run automated sanity checks and controls on the quality of the data provided and therefore increase assurance on the completeness and accuracy of the data received; and
• To finally load these into our audit analytics solutions.

To create such a solution, audit firms have worked in collaboration with major central administrators and custodian banks. Today, the data factory environment contributes to the consistency of information, the standardization of data, and the automation of the fund industry’s needs to remain super-efficient and of the utmost quality. Finally, the last trend we have observed is the emergence of ETL solutions across countries. Most of the service providers are international players leveraging the same accounting and/or custodian systems over several countries, therefore the audit firms have started to deploy the same ETL solutions across jurisdictions. As an example, the aforementioned ETL is used for all major service providers active in France and in Luxembourg… and further afield!

Audit analytic solutions for funds

Well-structured exchange, automated transformation, and the loading of data are critical in ensuring efficiency and security. The subsequent ability to properly analyze the data and to visualize the information in a smart and meaningful way to support controls and business decisions, allows us to exploit the benefit of the technological evolution.

In recent years, we have observed the emergence of digital solutions for smart fund audit analytics. “DNAV Luxembourg / DNAV Cloud” illustrates this evolution with a development which began at the beginning of the 2010’s. Today, as with the earlier described ETL, there are clear trends within fund audit analytic tools to converge across geographies and to move such solutions to a cloud-based environment.

Let’s explore the purposes of such analytic solutions and which added-value they bring to the funds and their investors. Fund audit analytic solutions, such as DNAV Cloud, combines automation, data management, automated audit routines, and visualization of data. It enables a secure, efficient, and high quality audit process that adds value and ensures that the auditor and those charged with governance can focus on what matters.

• It is expected that such fund audit analytic solutions incorporates advanced algorithms to test an entire population of data and to identify outliers and anomalies that require specific audit attention. This enables auditors to focus on what matters and to perform a high quality and effective audit. As tangible benefits, the auditor provides the fund management with perspectives on an entire population and findings that, if cumulating in time, might become significant. Such a tool opens the door to the most efficient solutions and the quality of a full population audit focused on outliers, versus a sample-based audit.
• It is expected that such fund audit analytic solutions focuses on specific features of the fund market such as multi-compartments funds, multi-currency classes hedged or not, swing pricing (full, partial, tiering), performance benchmark, investments and derivatives valuation, or different fee models (proportional, capped, fixed TER, etc.). This enables not only the ability to investigate specific, relevant financial sections of the financial statements and to increase the overall quality of the audit itself, but, most importantly, to share with asset managers and other fund’s stakeholders relevant perspectives and insights on the fund and the fund industry.
• It is also expected that such fund audit analytic solutions offer smart visualizations of complex data and analysis. These visualizations help auditors to identify outliers and anomalies before they become material audit findings. The visualization of data enables fast identification and communication of (potential) issues. With such capabilities, the auditor can offer management a timely and transparent view into matters impacting the fund and related audit process. It enables management to access real-time audit status visualization.

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As an example, DNAV Cloud offers these possibilities, but also gives auditors the ability to enforce data security, share insights, utilize autonomous data transfer with service providers, and employ advanced analytics that enable clients and the audit of their funds to move faster, safer, and smarter. The audit of funds has become as much about bits and bytes, as it is about adopting a secure and efficient process that adds value.